LSB INDUSTRIES, INC. 10-Q

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations This discussion is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Investors should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes included in “ Item 1. Financial Statements .” Notes referenced in this discussion and analysis refer to the notes to consolidated financial statements that are found in “ Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements .” Certain statements contained in this discussion may be deemed to be forward-looking statements. See “ Special Note Regarding Forward-Looking Statements .” Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in our Annual Report on Form 10-K for the year ended December 31, 2024, particularly in the section entitled “ Risk Factors .” Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to LSB Industries, Inc. and its consolidated subsidiaries. Overview General LSB is headquartered in Oklahoma City, Oklahoma and we manufacture and sell chemical products for the agricultural and industrial markets. We own and operate three multi-plant facilities in Cherokee, Alabama (the “Cherokee Facility”), El Dorado, Arkansas (the “El Dorado Facility”) and Pryor, Oklahoma (the “Pryor Facility”) and operate a facility on behalf of Covestro in Baytown, Texas (the “Baytown Facility”). Our products are sold through distributors and directly to end customers primarily throughout the U.S. and other parts of North America. Key Operating Initiatives for 2025 We expect our future results of operations and financial condition to benefit from the following key initiatives: • Investing to improve Environmental, Health & Safety and Reliability at our Facilities while Supplying our Customers with Products of the Highest Quality. ▪ We believe that our operational progress over the past several years represents proof that high safety standards not only enable us to protect what matters, which is the well-being of our employees, but also translates into improved plant performance. In 2025, we remain focused on our efforts to further the progress we have made with our safety programs to move closer to attaining zero injuries. We have been investing and plan to continue to invest additional capital at all three of our facilities during 2025 to build upon the success we have had in implementing enhanced safety programs during the last several years. ▪ We have multiple initiatives underway focused on continuing to improve the reliability of our plants as we advance towards our ammonia on-stream operating rate target and increase our production volumes of ammonia and other downstream products. Progress towards these targets would enable us to produce greater volumes of product for sale while lowering our unit cost of production thereby increasing our overall profitability. Additionally, our product quality program continues to focus on providing products to our customers that meet our quality standards. • Continued Optimization and Increase the Breadth of Distribution of our Product Mix. We have initiatives underway to increase the distribution of our products within our industrial end markets, among other product mix optimization strategies. We believe that these initiatives and strategies, combined with continued expansion of our customer relationships, the robust market analysis capabilities we have developed, and the establishment of in-market tank storage and distribution terminals, will make us more effective in identifying and capitalizing on the most profitable distribution opportunities for our products, while making our financial results more stable and predictable. Additionally, we have completed and are advancing several capital improvement projects with the intention of increasing our sales volumes of higher value downstream products resulting in improvements in our overall profit margins. • Development of Low Carbon Ammonia and Other Products. The reduction of greenhouse gas emissions, particularly related to carbon dioxide, has been and we expect will increasingly become a global environmental priority. Ammonia has continued to emerge as one of the more viable alternatives to serve as a hydrogen-based energy source for a variety of applications due to its higher energy density and ease of storage relative to hydrogen gas. Low carbon ammonia can be used as a coal and natural gas substitute in power generation, a zero-carbon fuel in the maritime sector, and as a carbon free fertilizer. If low carbon ammonia were to be adopted for these and other energy needs globally, some studies have indicated that future demand could increase from current levels of global annual production of ammonia. Low carbon ammonia is produced using natural gas and conventional processes but includes an additional stage where the carbon dioxide emissions are captured and permanently stored in deep underground rock formations. We believe that the resulting low carbon emission product can be sold at a premium to conventional ammonia, to customers seeking to reduce their carbon footprint, particularly in the power generation, marine, industrial, mining and agricultural end markets. 17 Additionally, we believe that producers of low carbon ammonia will be eligible for government incentives aimed at promoting carbon capture and sequestration (“CCS”). We believe we are well-positioned to capitalize on this opportunity given our potential to retrofit our existing plants, which we believe can reduce our time to market for low carbon ammonia and also reduce the upfront capital expenditures necessary to enable us to produce this product. We are currently pursuing projects that could enable us to become a producer and marketer of low carbon ammonia and other derivative products. These projects include a low carbon ammonia project at our El Dorado Facility in collaboration with Lapis Carbon Solutions (“Lapis”) that we expect to be operational by the end of 2026. In January 2025, we achieved pre-certification status under the Fertilizer Institute’s Verified Ammonia Carbon Intensity program. This is a voluntary certification of the carbon footprint of ammonia production at a specific facility, from well to production gate. Our El Dorado ammonia plant is one of four North American plants to have received such a status. • Evaluate and Pursue Organic Capacity Expansion. We have been evaluating opportunities across all our facilities to increase production capacity through the implementation of several potential debottlenecking projects, particularly at our El Dorado Facility. Initial feasibility studies have pointed to potentially attractive returns for some of these projects. However, given the current high-cost environment and limited resources, coupled with our outlook for moderating selling prices, during 2024 we elected to put the El Dorado expansion projects on hold. We plan to reevaluate these projects over the course of 2025 to determine our prospects of moving forward with one or more of them in the future. • During 2024, we undertook several smaller projects that we expect to enhance our profitability during 2025. These projects include: ▪ Construction of additional AN solution storage and new AN solution rail loading capability at our El Dorado Facility to significantly increase the volume of AN solution sales and increase product optionality at the site. We expect this project to be completed in the third quarter of 2025; ▪ Construction of 5,000 tons of additional nitric acid storage at our El Dorado Facility was completed in the latter part of 2024 to help us optimize our product sales mix; and ▪ Expansion of our urea capacity at our Pryor Facility, to enable to use a portion of the facility’s ammonia output to upgrade to approximately 75,000 additional tons of UAN per year. This project was completed in late 2024 and we expect it to lead to increased UAN sales volumes during 2025. • Evaluate Acquisitions of Strategic Assets or Companies. We may evaluate opportunities to acquire strategic assets or companies where we believe those acquisitions will enhance the value of the Company and provide attractive returns. We may consider assets and companies that can provide us with geographic expansion, extend an existing product line, add one or more new product lines, leverage our existing ammonia production capabilities, or complement our existing business lines, among other accretive opportunities. Recent Business Developments Advanced Low Carbon Ammonia Initiatives In May 2024, we announced an agreement to supply, for a five-year period commencing January 1, 2025, up to 150,000 short tons per year of low carbon ammonium nitrate solution (“ANS”) to Freeport Minerals Corporation (“Freeport”). In early 2025 we began supplying conventional ANS to Freeport from our El Dorado Facility, and expect to phase in the low carbon contracted volume in the next year. Freeport intends to use the low carbon ANS purchased from us for its United States copper mining operations. In October 2023, we announced a collaboration with INPEX Corporation and Air Liquide Group to conduct a preliminary front end engineering design (“pre-FEED”) study for the development of a large-scale, low carbon ammonia production and export project on the Houston Ship Channel. Initially targeted to produce more than 1.1 million metric tons per year of low carbon ammonia beginning in 2029, the pre-FEED study was completed in the fourth quarter of 2024. Given the impact of U.S. tariff-related price increases and other global economic uncertainties on costs, coupled with a slower-than-anticipated ramp-up of low carbon ammonia demand, we have decided to put a pause on the project. In April 2022, we entered into an agreement with Lapis to develop a project to capture and sequester CO 2 at our El Dorado Facility. Lapis, backed by Cresta Fund Management, a Dallas-based middle-market infrastructure investment firm, will invest the majority of the capital required for project development. The project is expected to be completed and operational by the end of 2026, subject to the approval of a Class VI permit, at which time CO 2 injections are expected to begin. Once operational, the project at the El Dorado site will initially capture and sequester approximately 400,000 to 500,000 metric tons of CO 2 per year in underground saline aquifers. The sequestered CO 2 generated from the facility’s ammonia production is expected to qualify for federal tax credits under Internal Revenue Code Section 45Q, which are $85 per metric ton of CO 2 captured and sequestered. Lapis, as the majority owner of the carbon capture and sequestration equipment, will earn the 45Q tax credits and will pay us a fee for each ton of CO 2 captured and sequestered 18 by the end of 2026. Once in operation, the sequestered CO 2 is expected to reduce our overall scope 1 GHG emissions by approximately 25% from current levels. In addition, sequestering approximately 400,000 to 500,000 metric tons of CO 2 annually is expected to enable us to produce approximately 305,000 to 380,000 metric tons of low carbon ammonia annually, a product that could potentially be sold at higher price levels than conventional ammonia. In February 2023, a key milestone was achieved in the advancement of our low carbon ammonia project at El Dorado by filing a pre-construction Class VI permit application with the United States Environmental Protection Agency (the “EPA”). The EPA recognized the application as complete in March 2023 and is currently in the review process. Higher Ammonia Prices and AN and UAN Sales Volumes Offset by Higher Natural Gas Input Costs First quarter 2025 results were impacted by natural gas input costs, which were higher than they were in the first quarter and full year of 2024. Partially offsetting the impact of higher natural gas prices were increased sales volumes of AN and UAN. Additionally, first quarter 2025 results benefited from higher ammonia prices relative to the prior year first quarter. Ammonia prices have declined over the past several months, largely as a result of lower natural gas input costs in Europe, the global ammonia market’s marginal producer region. Lower European natural gas prices reflect expectations that Russia and Ukraine may reach a peace agreement following more than three years of armed conflict, which could lead to an increased flow of Russian natural gas into Europe. Ammonia prices may also be impacted by the start-up of new production capacity in both the United States and internationally, with at least one new world scale plant expected to come online during 2025. While ammonia prices have weakened over the past several months, pricing for ammonia derivative fertilizer products has been strong. Both urea and UAN prices are currently well above year-ago levels, reflecting a variety of factors including tight supply with limited inventory in the United States distribution channel; expectations for a strong Spring 2025 corn planting season with the USDA currently expecting 95 million acres of corn to be planted, up 5% from 2024; and tariffs on nitrogen fertilizers imported from countries outside of the United States, such as Trinidad, which are now being taxed at 10%. Demand for our industrial products is stable despite global economic concerns. Nitric acid demand has been steady, reflecting the resilience of the U.S. economy and consumer spending levels. Demand for AN for use in mining applications has been bolstered by positive exposure to copper, gold and iron ore, as well as continued attractive market fundamentals for aggregate production relating to infrastructure construction. Economic uncertainty has recently been heightened by the potential impacts of tariffs on global trade flows, consumer prices and production input costs. However, we believe that we have a meaningful degree of downside protection in our industrial business given our diverse customer base which is almost entirely located in the United States, the nature of our contracts and our ability to shift our production mix to products where demand and pricing are strongest. See a more detailed discussion below under “Key Industry Factors.” Key Industry Factors Supply and Demand Fertilizer The price at which our agricultural products are ultimately sold depends on numerous factors, including the supply and demand for nitrogen fertilizers which, in turn, depends upon world grain demand and production levels, the cost and availability of transportation and storage, weather conditions, competitive pricing and the availability of imports. Additionally, expansions or upgrades of competitors’ facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics. These factors can affect, in addition to selling prices, the level of inventories in the market which can cause price volatility and affect product margins. From a farmer’s perspective, the demand for fertilizer is affected by the aggregate crop planting decisions including farm economics, weather and fertilizer application rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources, soil conditions, weather patterns and the types of crops planted. Additionally, changes in corn prices, as well as soybean, cotton and wheat prices, can affect the number of acres of corn planted in a given year and the number of acres planted will drive the level of nitrogen fertilizer consumption, likely affecting prices. According to the World Agricultural Supply and Demand Estimates Report dated April 10, 2025 (the “April Report”), farmers planted approximately 90.6 million acres of corn in 2024, down 4.2% compared to the 2023 planting season. According to the April Report, the USDA estimates the United States ending stocks for the 2024 Harvest will be approximately 37.2 million metric tons, a 17.0% decrease from the 2023 Harvest. The USDA's expected yield for the 2024 Harvest is 179.3, up approximately 1.1% from a year ago. 19 The following April 2025 estimates are associated with the corn market: 2025 Crop 2024 Crop 2023 Crop (2024 Harvest) (2023 Harvest) Percentage (2022 Harvest) Percentage April Report (1) April Report (1) Change (2) April Report (1) Change (3) U.S. Area Planted (Million acres) 90.6 94.6 (4.2 %) 88.2 2.7 % U.S. Yield per Acre (Bushels) 179.3 177.3 1.1 % 173.4 3.4 % U.S. Production (Million bushels) 14,867 15,341 (3.1 %) 13,651 8.9 % U.S. Ending Stocks (Million metric tons) 37.2 44.8 (17.0 %) 34.6 7.5 % World Ending Stocks (Million metric tons) 287.7 314.3 (8.5 %) 304.8 (5.6 %) 1. Information obtained from the April Report for the 2024/2025 ("2025 Crop"), 2023/2024 (“2024 Crop”) and 2022/2023 (“2023 Crop”) corn marketing years. The marketing year is the twelve-month period during which a crop normally is marketed. For example, the marketing year for the current corn crop is from September 1 of the current year to August 31 of the next year. The year begins at the harvest and continues until just before harvest of the following year. 2. Represents the percentage change between the 2025 Crop amounts compared to the 2024 Crop amounts. 3. Represents the percentage change between the 2025 Crop amounts compared to the 2023 Crop amounts. The current USDA corn outlook for the United States calls for increased exports, lower feed and residual use, and smaller ending stocks. Exports were raised 100 million bushels reflecting the pace of sales and shipments to date and relatively competitive U.S. prices. With no other use changes, ending stocks are down 75 million bushels from the previous month’s report. From a demand perspective, we believe that corn prices will remain at a level that will further support demand for fertilizers during 2025. Industrial Products Our industrial products sales volumes are dependent upon general economic conditions, primarily in the housing, automotive and paper industries. Demand for our industrial products is stable despite persistent global economic challenges. Nitric acid demand has been steady, reflecting the strength of the U.S. economy and consumer spending levels. Our sales prices generally vary with the market price of ammonia or natural gas, as applicable, in our pricing arrangements with customers. Our LDAN and AN solution, which are primarily used as AN fuel oil and specialty emulsions for usage in the quarry and the construction industries, are used for metals mining and to a lesser extent, for coal. Demand for AN for use in mining applications has been bolstered by positive exposure to copper, gold and iron ore, as well as continued attractive market fundamentals for aggregate production relating to infrastructure construction. Economic uncertainty has recently been heightened by the potential impacts of tariffs on global trade flows, consumer prices and production input costs. However, we believe that we have a meaningful degree of downside protection in our industrial business given our diverse customer base which is almost entirely located in the United States, the nature of our contracts and our ability to shift our production mix to products where demand and pricing are strongest. Natural Gas Prices Natural gas is the primary feedstock used to produce nitrogen fertilizers at our manufacturing facilities. In recent years, U.S. natural gas reserves have increased significantly due to, among other factors, advances in extracting shale gas, which has reduced and stabilized natural gas prices, providing North America with a cost advantage over certain imports. As a result, our competitive position and that of other North American nitrogen fertilizer producers has been positively affected. We historically have purchased natural gas either on the spot market, through forward purchase contracts, or a combination of both and we have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements. These forward purchase contracts are generally either fixed-price or index-price, short-term in nature and for a fixed supply quantity. We are able to purchase natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems. The following table shows the volume of natural gas purchased and the average cost per MMBtu: Three Months Ended March 31, 2025 2024 Natural gas volumes (MMBtu in millions) 7.5 7.2 Natural gas average cost per MMBtu $ 3.77 $ 2.33 20 Transportation Costs Costs for transporting nitrogen-based products can be significant relative to their selling price. We continue to evaluate the rising costs of freight domestically. As a result of increases in demand for available rail, truck and barge options to transport product, primarily during the spring and fall planting seasons, higher transportation costs have and could continue to impact our margins, where we are unable to fully pass through these costs to our customers. Additionally, truck driver shortages could impact our ability to fulfill customer demand. As a result, we continue to evaluate supply chain efficiencies to reduce or counter the impact of higher logistics costs. Key Operational Factors Facility Reliability Consistent, reliable and safe operations at our chemical plants are critical to our financial performance and results of operations. The financial effects of planned downtime at our plants, including a planned major maintenance activity (each such activity, a “Turnaround”) is mitigated through a diligent planning process that considers the availability of resources to perform the needed maintenance and other factors. Unplanned downtime of our plants typically results in lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our products and increased costs related to repairs and maintenance. All Turnarounds result in lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our products and increased costs related to repairs and maintenance, which repair and maintenance costs are expensed as incurred. The next ammonia plant Turnaround is currently planned for our El Dorado Facility in the first half of 2026. We completed Turnarounds at both our Pryor Facility and Cherokee Facility in the latter half of 2024. Following those Turnarounds, the next Pryor Facility Turnaround is currently planned for 2027, with the Cherokee Facility ammonia Turnaround currently planned for 2028. Ammonia Production Ammonia is the basic product used to produce all of our upgraded products. The ammonia production rates of our plants affect the total cost per ton of each product produced and the overall sales of our products. For 2025, we are targeting total ammonia production of approximately 820,000 tons to 850,000 tons. Forward Sales Contracts In certain instances, we may use forward sales of our fertilizer products to optimize our asset utilization, planning process and production scheduling. These sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that are agreed upon, with delivery dates typically occurring within 12 months. We use this program to varying degrees during the year depending on market conditions and our view of changing price environments. Fixing the selling prices of our products months in advance of their ultimate delivery to customers typically causes our reported selling prices and margins to differ from spot market prices and margins available at the time of shipment. Consolidated Results of the First Quarter of 2025 Our consolidated net sales for the first quarter of 2025 were $143.4 million compared to $138.2 million for the same period in 2024. Our consolidated operating income for the first quarter of 2025 was $4.5 million compared to $11.3 million for the same period in 2024. The items impacting our operating results are discussed in more detail below and under “Results of Operations.” Items Affecting Comparability of Results of the First Quarter Selling Prices For the first quarter of 2025, average selling prices for ammonia and AN increased while the average selling price for UAN decreased compared to the first quarter of 2024. Gain on Extinguishment of Senior Secured Notes During the first quarter of 2024, we repurchased $32.9 million of our Senior Secured Notes due 2028 (the “Senior Secured Notes”) through open market transactions for approximately $31.3 million. As a result, we recognized a gain on extinguishment of debt, net of issuance costs, of approximately $1.1 million. 21 Plant, Property and Equipment Impairments For the three months ended March 31, 2025 and 2024, we recorded asset write-downs primarily related to assets no longer in use in the amount of $0.1 million and $1.5 million, respectively. These write-downs are included in Other expense (income), net on our condensed consolidated statements of operations. Results of Operations The following is a discussion and analysis of our condensed consolidated results of operations for the three months ended March 31, 2025 and 2024. Net sales to unaffiliated customers are reported in the condensed consolidated financial statements and gross profit represents net sales less cost of sales. Net sales are reported on a gross basis with the cost of freight being recorded in cost of sales. Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 The following table sets forth certain financial information, the increase or decrease between those periods, and the percentage increase or decrease between those periods with respect to each line item: Three Months Ended March 31, Percentage 2025 2024 Change Change (Dollars In Thousands) Net sales: AN & Nitric Acid $ 57,618 $ 48,435 $ 9,183 19 % Urea ammonium nitrate (UAN) 43,865 41,192 2,673 6 % Ammonia 33,272 39,530 (6,258 ) (16 )% Other 8,677 9,047 (370 ) (4 )% Total net sales $ 143,432 $ 138,204 $ 5,228 4 % Gross profit: Adjusted gross profit (1) $ 36,442 $ 40,287 $ (3,845 ) (10 )% Depreciation and amortization (2) (20,063 ) (17,094 ) (2,969 ) 17 % Turnaround expense (1,995 ) (915 ) (1,080 ) N/M Total gross profit 14,384 22,278 (7,894 ) (35 )% Selling, general and administrative expense 10,153 10,294 (141 ) (1 %) Other (income) expense, net (237 ) 724 (961 ) N/M Operating income 4,468 11,260 (6,792 ) (60 )% Interest expense, net 8,064 9,729 (1,665 ) (17 )% Gain on extinguishment of debt — (1,134 ) 1,134 N/M Non-operating other income, net (1,673 ) (3,561 ) 1,888 (53 )% (Benefit) provision for income taxes (283 ) 603 (886 ) (147 )% Net (loss) income $ (1,640 ) $ 5,623 $ (7,263 ) N/M Other information: Gross profit percentage (3) 10.0 % 16.1 % (6.1 )% Adjusted gross profit percentage (3) 25.4 % 29.2 % (3.8 )% Property, plant and equipment expenditures $ 20,867 $ 18,287 $ 2,580 _____________________________ N/M-Not meaningful. (1) Represents a non-GAAP measure since the amount excludes unallocated depreciation, amortization and Turnaround expenses. (2) Represents amount classified as cost of sales. (3) As a percentage of the total net sales. 22 The following tables provide key operating metrics for the fertilizer and major industrial products, the increase or decrease between those periods, and the percentage increase or decrease between those periods with respect to each line item: Three Months Ended March 31, Percentage Product (tons sold) 2025 2024 Change Change AN & Nitric Acid 150,531 128,801 21,730 17 % Urea ammonium nitrate (UAN) 148,565 134,933 13,632 10 % Ammonia 73,403 94,831 (21,428 ) (23 )% Total 372,499 358,565 13,934 4 % Three Months Ended March 31, Percentage Gross Average Selling Prices (price per ton) 2025 2024 Change Change AN & Nitric Acid $ 383 $ 376 $ 7 2 % Urea ammonium nitrate (UAN) $ 295 $ 305 $ (10 ) (3 )% Ammonia $ 453 $ 417 $ 36 9 % Three Months Ended March 31, Percentage Average Benchmark Prices (price per ton) 2025 2024 Change Change Tampa Ammonia Benchmark $ 491 $ 466 $ 25 5 % NOLA UAN $ 276 $ 251 $ 25 10 % Net Sales Net sales increased during the first quarter of 2025 compared to the prior year period driven by the impact of higher volumes for AN and UAN and improved pricing for AN and ammonia relative to the first quarter of 2024. Partially offsetting this increase was lower pricing for UAN and lower ammonia sales volumes. Gross Profit As noted in the table above, we recognized a gross profit of $14.4 million for the first quarter of 2025 compared to $22.3 million for the same period in 2024, or a $7.9 million decrease. Overall, our gross profit percentage was 10.0% compared to 16.1% for the same period in 2024. Our adjusted gross profit percentage decreased to 25.4% for the first quarter of 2025 from 29.2% for the first quarter of 2024. Our overall gross profit for the first quarter of 2025 was lower compared to the same period of 2024 primarily due to higher natural gas costs, higher depreciation and turnaround expenses. Other (income) expense, net Other (income), net for the first quarter of 2025 consisted primarily of short-term rental income from railcar subleases and other miscellaneous income, partially offset by asset write-downs. The write-downs and rental income were higher in 2024 compared to 2025. Interest Expense Interest expense for the first quarter of 2025 was $8.1 million compared to $9.7 million for the same period in 2024. The decrease relates to lower outstanding balances on our Senior Secured Notes (due to repurchases) and our Secured Financing due 2025 (defined below) (due to repayments). Gain on Extinguishment of Debt During the first quarter of 2024, we repurchased $32.9 million of our Senior Secured Notes through open market transactions for approximately $31.3 million. As a result, we recognized a gain on extinguishment of debt, net of issuance costs, of approximately $1.1 million. Non-operating Other Income, net Non-operating other income, net for the first quarter of 2025 was $1.7 million compared to $3.6 million for the same period of 2024, primarily related to interest income earned during both periods from our short-term investments. Our average short-term investments balance was lower during the first quarter of 2025 compared to the first quarter of 2024. 23 (Benefit) provision for Income Taxes The benefit for income taxes for the first quarter of 2025 was $0.3 million compared to a provision of $0.6 million for the same period of 2024. The resulting effective tax rate for the first quarter of 2025 was a benefit on pre-tax loss of 14.7% compared to a provision on pre-tax income of 9.7% for the same period of 2024. For the first quarter of 2025, the effective tax rate was lower than the statutory rate primarily due to changes in valuation allowance and nondeductible compensation, partially offset by state taxes. For the first quarter of 2024, the effective tax rate was lower than the statutory rate primarily due to nondeductible compensation and state taxes. See discussion in Note 7. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes our cash flow activities for the three months ended March 31: 2025 2024 Change (In Thousands) Net cash flows from operating activities $ 6,836 $ 24,107 $ (17,271 ) Net cash flows from investing activities $ (5,271 ) $ 47,902 $ (53,173 ) Net cash flows from financing activities $ (6,765 ) $ (44,518 ) $ 37,753 Net Cash Flow from Operating Activities Net cash provided by operating activities was $6.8 million for the first three months of 2025 compared to $24.1 million for the same period of 2024, a change of $17.3 million. The decrease was primarily a result of higher cost of sales, changes in working capital and lower interest income on our short-term investments. Net Cash Flow from Investing Activities Net cash used by investing activities was $5.3 million for the first three months of 2025 compared to net cash provided by investing activities of $47.9 million for the same period of 2024, a change of $53.2 million. For the first three months of 2025, the net cash used primarily related to purchases of short-term investments of $49.0 million and expenditures for property, plant and equipment of $20.9 million, partially offset by proceeds from short-term investments of $64.5 million. For the first three months of 2024, the net cash provided primarily related to proceeds from short-term investments of $100.9 million, partially offset by purchases of short-term investments of $34.7 million and expenditures for property, plant and equipment of $18.3 million. Net Cash Flow from Financing Activities Net cash used by financing activities was $6.8 million for the first three months of 2025 compared to net cash used of $44.5 million for the same period of 2024, a change of $37.8 million. For the first three months of 2025, the net cash used primarily consisted of payments on other long-term debt and short-term financing of $5.6 million and $1.2 million for tax withholding obligations related to the vesting of equity awards. For the first three months of 2024, the net cash used primarily consisted of repurchases of our Senior Secured Notes of $31.3 million, payments on other long-term debt and short-term financing of $5.8 million, payments of $5.4 million for the purchase of treasury stock and $1.8 million for tax withholding obligations related to the vesting of equity awards. 24 Capitalization The following table summarizes our total cash and cash equivalents, short-term investments, long-term debt and stockholders’ equity as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 (In Millions) Cash and cash equivalents $ 15.0 $ 20.2 Short-term investments 148.5 164.0 Total cash, cash equivalents and short-term investments $ 163.5 $ 184.2 Long-term debt: Revolving Credit Facility $ — $ — Senior Secured Notes due 2028 (1) 478.4 478.4 Secured Financing due 2025 7.0 8.5 Finance Leases 5.7 3.9 Unamortized debt issuance costs (2) (5.2 ) (5.6 ) Total long-term debt, including current portion, net 485.9 $ 485.2 Total stockholders' equity 490.6 $ 491.6 (1) See discussion contained in Note 4. (2) Debt issuance costs as of March 31, 2025 and December 31, 2024 of approximately $0.6 million and $0.6 million, respectively, relating to our Revolving Credit Facility are not included in Unamortized debt issuance costs. These costs are included in our condensed consolidated balance sheets in Intangible and other assets, net. We currently have a revolving credit facility pursuant to a credit agreement, dated December 21, 2023, between us and the lenders identified on the signature pages thereof and JPMorgan Chase Bank, N.A, as administrative agent (the “Revolving Credit Facility”), with a borrowing base up to an initial maximum of $75 million, with an option to increase the maximum by an additional $25 million (which amount is uncommitted). Availability under the Revolving Credit Facility is subject to a borrowing base and an availability block of $7.5 million which is applied against the $75 million initially reducing the maximum (which can be removed by us at our sole discretion, subject to the satisfaction of certain conditions). The Revolving Credit Facility provides for a sub-facility for the issuance of letters of credit in an aggregate amount not to exceed $10 million, with the outstanding amount of any such letters of credit reducing availability for borrowings. As of March 31, 2025, our Revolving Credit Facility was undrawn and had approximately $40 million of availability. See Note 4 for further discussion of the Revolving Credit Facility. For the full year of 2025, we expect capital expenditures to be approximately $80 million to $90 million of which $60 million to $65 million is expected to be spent on sustaining production, with the remainder spent on growth initiatives. From time to time, when the Company exceeds the funding threshold in our natural gas purchase commitments, the Company is required to fund cash collateral to our counterparty. As of March 31, 2025, we had approximately $163.5 million of cash and short-term investments. From time to time, we may seek to deploy capital through common stock repurchases or the early redemption of outstanding debt. Such repurchases may be made in open market purchases, privately negotiated transactions or otherwise and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We believe that the combination of our cash and cash equivalents, short-term investments, the availability under our Revolving Credit Facility and our cash flow from operations will be sufficient to fund our anticipated liquidity needs for the next twelve months. Compliance with Long - Term Debt Covenants As discussed in Note 4, the Revolving Credit Facility requires, among other things, that we meet a financial covenant. The Revolving Credit Facility does not include financial covenant requirements unless a defined covenant trigger event has occurred and is continuing. As of March 31, 2025, no trigger event had occurred. Loan Agreements Senior Secured Notes due 2028 – LSB has $478.4 million aggregate principal amount of Senior Secured Notes outstanding as of March 31, 2025. Interest is to be paid semiannually in arrears on May 15 th and October 15 th. The Senior Secured Notes mature on October 15, 2028. Secured Financing due 2025 – We are a party to a $30 million secured financing arrangement with an affiliate of Eldridge (the “Secured Financing due 2025”). Principal and interest are payable in 60 equal monthly installments with a final balloon payment of approximately $5 million due in August 2025. 25 Revolving Credit Facility – At March 31, 2025, our Revolving Credit Facility was undrawn and had approximately $40 million of availability, based on our eligible collateral, less outstanding letters of credit as of that date. Also see discussion above under “Compliance with Long-Term Debt Covenants.” Finance leases – Our finance leases consist primarily of leases on railcars. Most of our railcar leases are classified as operating leases. Capital Expenditures – First Three Months of 2025 For the first three months of 2025, capital expenditures relating to property, plant and equipment were $20.9 million. The capital expenditures were funded primarily from cash and working capital. See discussion above under “Capitalization” for our total expected capital expenditures for 2025. Equity and debt repurchases In May 2023, our Board authorized a $150 million stock repurchase program. The program is intended as a means to maximize stockholder value by returning capital to stockholders. Under the repurchase program, we are authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may be made pursuant to Rule 10b5-1 plans or other means as determined by our management and in accordance with the requirements of the SEC. The repurchase program does not obligate us to purchase any particular number or type of securities. During the three months ended March 31, 2025, we did not repurchase any of our shares of common stock. The repurchase program may be suspended, terminated or modified at any time for any reason. During the three months ended March 31, 2025, we did not repurchase any of our Senior Secured Notes. Expenses Associated with Environmental Regulatory Compliance We are subject to specific federal and state environmental compliance laws, regulations and guidelines. As a result, our expenses were $0.9 million for the first three months ended March 31, 2025 in connection with environmental projects. For the remainder of 2025, we expect to incur expenses ranging from $3.2 million to $3.4 million in connection with additional environmental projects. However, it is possible that the actual costs could be significantly different than our estimates. Seasonality We believe sales of fertilizer products to the agricultural industry are seasonal, while sales into the industrial sectors generally are less susceptible to seasonal fluctuations. The selling seasons for fertilizer products are primarily during the spring and fall planting seasons, which typically extend from March through June and from September through November in the geographical markets where we distribute the majority of our fertilizer products. As a result, we typically increase our inventory of fertilizer products prior to the beginning of each planting season in order to meet the demand for our products. In addition, the amount and timing of sales to the agricultural markets depend upon weather conditions and other circumstances beyond our control. Performance and Payment Bonds We are contingently liable to sureties in respect of insurance bonds issued by the sureties in connection with certain contracts entered into by subsidiaries in the normal course of business. These insurance bonds primarily represent guarantees of future performance of our subsidiaries. As of March 31, 2025, we have agreed to indemnify the sureties for payments, up to $10.3 million, made by them in respect of such bonds. New Accounting Pronouncements Refer to Note 1 for recently issued accounting standards. Critical Accounting Policies and Estimates See “Critical Accounting Policies and Estimates,” Item 7 of our Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025 (the “2024 Form 10-K”). In addition, the preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosures of contingencies and fair values, including, but not limited to, various environmental and legal matters, including matters discussed under footnote A of Note 5. Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. We establish valuation allowances if we believe it is more-likely-than-not that some or all of deferred tax assets will not be realized. Significant judgment is applied in evaluating the need for and the magnitude of appropriate valuation allowances against deferred tax assets. It is also reasonably possible that the estimates and assumptions utilized as of March 31, 2025, could change in the near term. Actual results could differ materially from these estimates and judgments, as additional information becomes known. 26 Non-GAAP Financial Measures Management uses adjusted gross profit as a supplemental measure to review and assess the performance of our core business operations and for planning purposes. We define adjusted gross profit as gross profit excluding depreciation and amortization and Turnaround expenses included in our cost of sales, which we believe are not reflective of our operating performance in a given period. Adjusted gross profit is a metric that provides investors with greater transparency to the information used by management in its financial and operational decision-making. We believe this metric is useful to investors because it facilitates comparisons of our core business operations across periods on a consistent basis. Management believes that the non-GAAP measure presented in this Form 10-Q, when viewed in combination with our results prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”), provides a more complete understanding of the factors and trends affecting our business and performance. Adjusted gross profit is not a measure of financial performance under U.S. GAAP, and should not be considered a substitute for gross profit, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted gross profit has limitations as an analytical tool, and when assessing our operating performance, investors should not consider adjusted gross profit in isolation, or as a substitute for gross profit prepared in accordance with U.S. GAAP. Adjusted gross profit may not be comparable to similarly titled measures of other companies and other companies may not calculate such measure in the same manner as we do. The following table reconciles gross profit to adjusted gross profit. Three Months Ended March 31, 2025 2024 Reconciliation of Gross Profit to Adjusted Gross Profit: (In Thousands) Gross profit: 14,384 22,278 Depreciation and amortization 20,063 17,094 Turnaround expenses 1,995 915 Adjusted gross profit 36,442 40,287 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Item 3. Quantitative and Qualitat ive Disclosures about Market Risk General Our results of operations and operating cash flows are impacted by changes in market prices of ammonia and natural gas and changes in market interest rates. Forward Sales Commitments Risk Periodically, we enter into forward firm sales commitments for products to be delivered in future periods. As a result, we could be exposed to embedded losses should our product costs exceed the firm sales prices at the end of a reporting period. At March 31, 2025, we had no embedded losses associated with sales commitments with firm sales prices. Commodity Price Risk A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Since we are exposed to commodity price risk, we periodically enter into contracts to purchase natural gas for anticipated production needs to manage risk related to changes in prices of natural gas commodities. Generally, these contracts are considered normal purchases because they provide for the purchase of natural gas that will be delivered in quantities expected to be used over a reasonable period of time in the normal course of business, and as such, are exempt from derivative accounting requirements. At March 31, 2025, we had no outstanding natural gas contracts which are subject to derivative accounting requirements. Interest Rate Risk We may be exposed to variable interest rate risk with respect to our Revolving Credit Facility when there are outstanding borrowings. As of March 31, 2025, we had no outstanding borrowings on this credit facility and no other variable rate borrowings. We currently do not hedge our interest rate risk associated with our variable interest loan. 27 Item 4. Control s and Procedures The Company maintains disclosure controls and procedures as defined in Rule 13a-15 under the Exchange Act designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2025. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025, at the reasonable assurance level. There were no changes to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 28 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained within this report may be deemed “Forward-Looking Statements” within the meaning of U.S. federal securities laws. All statements in this report other than statements of historical fact are Forward-Looking Statements that are subject to known and unknown risks, uncertainties and other factors, many of which are difficult to predict or outside of the Company’s control, which could cause actual results and performance of the Company to differ materially from those expressed in, or implied or projected by, such statements. Any such Forward-Looking Statements are not guarantees of future performance. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “may,” “could,” and similar expressions identify Forward-Looking Statements. All Forward-Looking Statements speak only as of the date on which they are made. Forward-Looking Statements contained herein include, but are not limited to: • our ability to invest in projects that will generate the best returns for our stockholders; • our future liquidity outlook; • the outlook of our chemical products and related markets; • our ability to successfully leverage our existing business platform and portfolio of assets to produce low carbon products and execute our advanced low carbon ammonia initiatives, including our strategy to become a leader in the energy transition in the chemical industry; • the amount, timing and effect on the nitrogen market from current nitrogen expansion projects; • the effect from the lack of non-seasonal volume; • our belief that competition is based upon service, price, location of production and distribution sites, and product quality and performance; • the outlook for the industrial end markets; • the availability of raw materials; • our ability to broaden the distribution of our products, including our ability to leverage our nitric acid production capacity at our El Dorado Facility; • our expectations regarding future ammonia pricing; • the result of our product and market diversification strategy; • changes in domestic fertilizer production; • the increasing output, capacity and production volumes of our existing production facilities; • our ability to moderate risk inherent in agricultural markets; • the sources to fund our cash needs and how this cash will be used; • the ability to enter into the additional borrowings; • the anticipated cost and timing of our capital projects; • certain costs covered under warranty provisions; • our ability to pass to our customers cost increases in the form of higher prices; • our belief as to whether we have sufficient sources for materials and components; • annual natural gas requirements; • the development of the market and demand for low carbon ammonia; • compliance by our facilities with the terms of our permits; • the costs of compliance with environmental laws, health laws, security regulations and transportation regulations; • our belief as to when Turnarounds will be performed and completed; • expenses in connection with environmental projects; • the effect of litigation, legal actions and other contingencies on our business, financial condition, results of operations or cash flows, including the potential financial penalties associated with the NOV from ADEQ regarding wastewater discharges from our El Dorado Facility; • our ability to comply with debt servicing and covenants, including our beliefs as to whether we can meet all required covenant tests for the next twelve months; • our ability to meet debt maturities or redemption obligations when due; and • the impact of our repurchase program on our stock price and cash reserves. While we believe, the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance such expectations will prove to have been correct. There are a variety of factors which could cause future outcomes to differ materially from those described in this report, including, but not limited to, the following: • changes in general economic conditions, both domestic and foreign; 29 • material reductions in revenues; • material changes in interest rates; • our ability to collect in a timely manner a material amount of receivables; • increased competitive pressures; • changes in federal, state and local laws and regulations, or in the interpretation of such laws and regulations; • changes in laws, regulations or other issues related to climate change; • releases of pollutants into the environment exceeding our permitted limits; • material increases in equipment, maintenance, operating or labor costs not presently anticipated by us; • the requirement to use internally generated funds for purposes not presently anticipated; • the inability to secure additional financing for planned capital expenditures or financing obligations due in the near future; • our substantial existing indebtedness; • material changes in the cost of natural gas and certain precious metals; • limitations due to financial covenants; • changes in competition; • the loss of any significant customer; • increases in cost to maintain internal control over financial reporting; • changes in operating strategy or development plans; • an inability to fund the working capital and expansion of our businesses; • changes in the production efficiency of our facilities; • adverse results in our contingencies including pending litigation; • unplanned downtime at one or more of our facilities; • changes in production rates at any of our facilities; • an inability to obtain necessary raw materials and purchased components; • material increases in cost of raw materials; • material changes in our accounting estimates; • significant problems within our production equipment; • fire or natural disasters; • an inability to obtain or retain our insurance coverage; • difficulty obtaining necessary permits; • difficulty obtaining third-party financing; • risks associated with proxy contests initiated by dissident stockholders; • changes in fertilizer production; • reduction in acres planted for crops requiring fertilizer; • decreases in duties for products we sell resulting in an increase in imported products into the United States; • adverse effects from regulatory policies, including tariffs; • geopolitical concerns; • volatility of natural gas prices; • price increases resulting from increased inflation; • weather conditions, including the effects of climate change; • increases in imported agricultural products; • global supply chain disruptions; • other factors described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report; and • other factors described in Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2024. Given these uncertainties, all parties are cautioned not to place undue reliance on such Forward-Looking Statements. Except to the extent required by law, we disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the Forward-Looking Statements contained herein to reflect future events or developments. 30 PART II OTHER INFORMATION